No, wine is not tax-free. It does, however, carry significant benefits over other asset classes in this respect.
There are many wine investment brokers who tout wine investment as being free from the taxes that can seriously impact any gains from investing in assets such as crypto or stocks. The reality is that the situation is more complicated than that. As always, for investors, it’s important to do your research to determine the best way to optimise your gains.
When you decide to sell a few bottles or cases, the main tax you’ll need to be aware of is capital gains tax (CGT) on fine wine.
As with investing in crypto or stocks and shares, if you’re trading large volumes on a regular basis then you could be considered a broker, and your investment gains could be considered income. In reality, few investors will have to pay income tax on fine wine investing; however, if you’re trading more than a few bottles or cases a day, then you should speak with your accountant because you would be expected to report and pay tax on them as such.
Inheritance tax on fine wine is the other potential tax you’ll want to understand your liability toward. The value of your estate's wines should be treated like any other asset. HMRC has made it clear that inheritance tax will now apply to all assets, which includes wine collections you have been holding for years and not just what is stored in warehouses or cellars at time of passing away - so it’s important that these are valued accordingly.
Capital gains tax is tax owed on the profit from selling an asset that’s appreciated in value. So, if you buy something for £10,000 then later sell it for £15,000 - you’d owe capital gains tax on the £5,000 you made. This tax applies to almost all asset classes such as stocks and shares, crypto or precious metals (with the exception of legal currency such as gold sovereigns).
Where capital gains becomes a bit more complex is for investments in assets that HMRC call ‘chattels’. Chattels are defined as ‘tangible moveable property’ and includes fine wine, and also art, antiques, jewellery, racehorses and various other collectibles. Chattels fall into two groups – wasting and non-wasting - depending on the duration of its ‘useful life’. A wasting chattel is a one with a useful life not exceeding 50 years.A wasting asset is exempt from CGT. So, if a taxpayer buys a racehorse, for example, and later sells it at a profit, the gain will be exempt from capital gains tax because it is a gain on the sale of an asset that has a value that will completely disappear before 50 years.
And this is where things get more complicated.
Contrary to popular belief, most wines don’t improve with age, so for the vast majority of bottles there’s no question of their having a predictable life beyond 50 years. But what about fine wine?
There are many fine wines for which the drinking window at bottling is beyond 50 years.
HMRC states: Where the facts justify it, we would normally contend that wine is not a wasting asset if it appears to be fine wine which not unusually is kept (or some samples of which are kept) for substantial periods sometimes well in excess of 50 years.
HMRC considers wine a ‘wasting asset’, defined as ‘an asset with a predictable life not exceeding fifty years at the time it was acquired’. While port and a few fine wines are mentioned as exceptions, the vast majority of wine falls into this category.
Wine is also exempt as bottles are designated chattels, defined as ‘tangible moveable property’. Gains of less than £6,000 are not subject to capital gains tax under this exemption.
When you import wine, you’re responsible for paying the applicable VAT, excise duty, and customs duty.
What are VAT, excise duty, and customs duty?
VAT stands for value added tax. For wine, VAT is assessed at 20% of the wholesale cost of the wine.
Excise duty is a tax that applies to goods defined as excise goods. In the UK, excise goods are defined as wine and spirits, tobacco products, and certain types of fuel. For wine, the rate of excise duty is determined by the percentage of alcohol by volume and whether the wine is still or sparkling. The table below shows the rates of excise duty due on each category.
Excise duty and Customs duty on wine are both set per hectolitre, or 100 litres.
Customs duty is a tax due on all imported excise goods, as well as any imported goods worth over £135. Customs duty is determined by a bottle’s volume, region of origin, percentage of alcohol by volume, and whether it’s still or sparkling. We’ve summarised the general estimates for bottles holding 2 litres or less below:
When you purchase a bottle of wine at retail, these fees are included in the cost set by the merchant.
If you’re purchasing wine abroad, you can bring 18 litres of still wine or 9 litres of sparkling wine back into the UK without having to pay VAT, customs duty, or excise duty.
Once you exceed this limit, you will have to declare the goods and pay any applicable VAT, customs duty, and excise duty.
Additionally, your personal allowance is strictly for goods you plan to enjoy yourself or give to others as gifts.
There is one way to delay paying VAT, excise duty, and customs duty: to buy and sell wine held in bond.
Bonded warehouses are secure facilities where wine can be stored until it’s ready to be shipped or sold. To operate as a bonded warehouse, the entire operation must meet HMRC’s requirements for security, stock management, and proper handling of taxes and fees.
Additionally, these warehouses are temperature-controlled and provide the optimal storage conditions for wine - indispensable for proving provenance when you decide to sell.
While wine is stored in a bonded warehouse, these fees are suspended. This makes it easier to transfer ownership of the bottles, or transfer the bottles themselves from one facility to another. If you’ve purchased wine En Primeur, your bottles will be held in bond until you decide to sell them on or have them delivered to your home.
VAT, customs duty, and excise duty are paid only when the wine is removed from the warehouse permanently. It’s also worth noting that as the value of the wine will appreciate while it’s in bond, the VAT, customs duty, and excise duty won’t increase - they’re set when the wine enters the warehouse, at its original value.
Take advantage of tax exemption and invest in wine with CultX. Get all the data on your portfolio’s performance, read updates on the market, and buy, sell, and trade when you choose - all from our app.
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* Past performance is not indicative of future success; the performance was calculated in GBP and will vary in other currencies. Any investment involves risk of partial or full loss of capital.
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